CSR Mercuria 2019 - Flipbook - Page 55
Carbon Emissions
Since 2007, Mercuria has been an active participant and advocate of the transition to a low carbon economy through the Company’s participation in all major carbon markets around the world.
We believe that putting a price on carbon emissions is the right approach towards decarbonizing our economies, in the most efficient manner.
By taking into account the price of emitting a ton
of CO2 in their production costs, industrial operators are motivated to modify their operating practices and processes towards less carbon intensive technologies as the price of carbon rises.
In 2019, as the price of CO2 allowances rose over
20 EUR/ton, European electricity producers reduced their carbon emissions by over 100 million
tons, as coal-fired power stations having to pay
for their CO2 emissions became less profitable
than gas-fired power stations which emit roughly
one half of the amount CO2 to generate the same
amount of electricity.
At Mercuria, our carbon desk interacts closely
with our power, gas and coal teams, as the price
of CO2 is intimately correlated with those commodities. It is anticipated that as the price of carbon rises, demand for coal goes down and consumption of gas goes up. However, the links are
not that straight forward and understanding the
exact dynamics of CO2 price formation is therefore essential to our European energy operations.
Our European carbon desks work with entities
covered by the EU Emissions Trading Scheme.
We help them manage their compliance obligations and protect against the volatility of the
underlying CO2 price, through hedges and structured solutions. We trade and provide liquidity on
the main carbon exchanges.
Over the years, we have managed one of the largest portfolio of carbon offset credits under the
UNFCCC program, assisting project developers
around the world in getting their emissions reductions projects approved by the UN and offering
them solutions to monetize the resulting carbon
credits. We assisted governments in securing
recognized and verifiable offsets for their carbon
reduction objectives, at the right price.
Despite the fact that demand for international
carbon offsets has largely decreased., we still
maintain a small portfolio of offsets as in the
future demand might re-emerge from market
mechanisms to be established under the Paris
agreement or under the upcoming international
aviation scheme (CORSIA).
Besides Europe, Mercuria is an important participant in the North American RGGI and California
carbon markets.
We are also following closely the developments
of the upcoming Chinese carbon market and intend to play an active role as it opens up in the
coming years.
LNG
In 2019 Mercuria entered the physical LNG market, concluding medium term agreements in Asia
and the USA. Mercuria is leveraging its financial
trading capabilities and strong presence in European & US gas markets In order to generate added value for LNG counterparts and manage the
inherent risks associated with physical commodity trading.
Over the last decade the LNG market has experienced considerable volume growth, transforming
a point to point industry into a more liquid and
commoditised marketplace. However, the market continues to be prone to strong cyclical imbalances that can often last several years. During
such protracted periods, consumers, producers,
and ship owners can be pushed to the limits of
their capabilities. Despite their best efforts to offer flexibility there remain physical constraints in
the LNG logistical chain which continue to imbalance the market. As such the work of trading
companies not only adds value and liquidity but
may gradually become necessary balancing service, warehousing risk and moving volumes in
over and under supplied markets to the benefit of
the industry as a whole.
55
